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Buying Your Second Property? A Guide

MORTGAGES | 03.04.2022

Around 10% of people in the UK now own a second home, and many more are considering purchasing one. Perhaps you’re looking for a holiday getaway or want to invest your savings. Maybe you’re even considering renting your second property out. Whilst the process for buying a second home shouldn’t feel too dissimilar to when you bought your first, there are additional fees and criteria to be aware of. We’ve covered any difficulties you may encounter in this short guide below.

What are your intentions for your second property?

  It is important to define how you want to use your second property, as this will determine the type of mortgage you need, for example:  
  • Holiday let mortgage, this is needed if you intend to buy a holiday home to let out on a short term basis. 
  • Buy-to-let mortgage, this will be required if you want to buy a new property in order to rent it out and create an income stream. 
  • Residential mortgage, is for those who choose to live between the two properties themselves, one may be perhaps a personal-use holiday home for example. 
  • Let-to-buy mortgages are for those looking to rent out their primary home in order to buy elsewhere, it means switching your current residential mortgage to a let-to-buy. 
 

How easy is it to get a mortgage for a second property?

  A second property can be a large financial burden, so many lenders will be more apprehensive to accept your application. In order to qualify for a second mortgage there are a number of criteria you should therefore be able to fulfil:   

A Large Deposit

When purchasing a second property you will normally need to be able to put down a considerable deposit, typically at least 25%. This differs from the 5-10% deposits often chosen by first time buyers. You will likely also need bank statements to prove you are able to put such an amount down.   

Proof of Good Credit

It may be the case that you will need to provide the lender with some assurance that you are a suitable candidate to make repayments for a second home. Documents pertaining to your previous ability to pay back debts may be needed as proof.  

A Stable Income

The lender will also want to ensure that you are able to afford the repayments of both your current home and the new property you are looking to buy. Evidence of employment and an appropriate income may need to be provided.   

Details of Rental Income

If you intend to let out your property you should also provide your lender with details of your rental income as this will likely contribute to your mortgage repayments.   

Additional Costs to Buying a Second Property: 

An additional property may bring many benefits and enjoyments to its owner. However, when buying your second home, depending on how you intend to use it,  you may encounter additional charges.   

Stamp Duty 

During your initial purchase of the property you will be subject to Stamp Duty land tax. With every purchase of a new home Stamp Duty must be paid. Though the price of it varies based on both the value of your property and whether you're buying an additional home. When it comes to paying Stamp Duty on a second property there will be a surcharge starting at 3%, this increases based on the value of your property.   

Taxes Following Purchase

Additional tax on your second property however does not end at purchase. You may plan on renting out your additional property, which you will act as a landlord for. If this is the case you will have to pay income tax for the revenue stream you make as a result.    Paying council tax will also be something you should factor into your finances as this is to be paid on top of the council tax you will be currently paying for your primary home.   

Post-Sale Tax

Once you eventually decide to sell your second home you will have to pay something called Capital Gains tax. This is paid based on the value your property has increased in the time you have owned it.  The tax can significantly reduce the profits you will receive after the sale has completed.    In addition to the taxes you will pay as an owner of multiple properties there may also be maintenance costs. If you intend to rent out one of your homes as a landlord, you will be responsible for keeping it in a good condition. There may also be unforeseen payments you need to finance as a result of the occupying tenants. These too should be taken into consideration.  You may encounter more difficulties when trying to buy your second property. If you are struggling or are in need of advice, contact our team at TaylorMade. We’re always happy to help, you can get in touch here.
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